A Public Accounts Committee report on the Government's risk assessments of Strategic Suppliers has slammed Ministers for failing to spot Carillion was in trouble long before the firm collapsed into liquidation.
The Government uses a traffic light Red-Amber-Green (RAG) scale to rate suppliers on their financial health, as well as the option to rate a supplier as 'High Risk' if there are "serious and persistent:" underperformance on a contract or contracts, including if the business is in financial distress.
The Committee has revealed that assessments of Carillion show that;
• Although Carillion had been rated Amber owing to performance against contracts with the Ministry of Defence and Ministry of Justice, it was not until after Carillion issued a profit warning in July 2017 that Government downgraded Carillion to Red. It appears the Government was not aware of Carillion's financial distress until this point.
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• In November 2017, officials recommended a provisional Black rating for Carillion. However, following representations from the company, the Cabinet Office did not confirm the designation. Carillion collapsed less than two months later.
Committee Chair, Meg Hillier MP, said the Carillion papers "identify clear and compelling problems with the business in the months leading to its collapse".
"Taxpayers, service users and people and businesses plunged into financial difficulty by Carillion's demise deserve to know what happened," she said.
"The fall-out from Carillion's collapse and the resulting burden on the public purse is still not clear. We will be seeking clarity on these critical matters and probing Suppliers and Government about what they are doing to ensure such a catastrophic failure is not repeated."
Deputy Chair, Sir Geoffrey Clifton-Brown MP, said the Government's RAG scale for Strategic Suppliers appears to be "too slow and clunky".
"Profit warnings for Carillion were issued in July and September 2017 and yet a high-risk recommendation to Ministers was not made until 29 November 2017," he said.
"The City, in contrast, knew well before July 2017 that Carillion was in trouble. Too many Government facilities contracts were concentrated in one large firm giving the impression that it was too big to fail, hence the perception that the Government would bail them out when push came to shove.
"The Carillion Board's erroneous belief that the Government would not let the company collapse appears to have contributed to their failure to take the necessary action to save the company and prevent the sad loss of jobs and damage to numerous suppliers and subcontractors when Carillion went into liquidation."
(LM/MH)
